How many times have you been harassed by telemarketing calls at the weirdest of hours asking you if you need a home loan or a credit card? What is so impalpable is how they manage to call you at the most inconvenient time and offer you the most irksome basket of products/services that you hardly perceive as needed. Sometimes one needs to try out the Sienfeld way of responding to these irritant pricks. For me, I have just entered all my contact numbers that I'm even remotely linked to in the National Do Not Call Registry. Hopefully, I don't get bombarded with a series of calls from the service-provider's staff confirming whether I really meant to not be contacted when I opted for this option.

While one learns to patiently deal with these inevitable calls, it is ironical to note that that these marketed services never reach those who are in dire need of them. If we take the banking services in particular, it is shocking to note that the second fastest growing economy in the world has about 240 million unbanked adults as per the reports. Rural lending to total bank lending has shown a steady decline since 1990s. The skewed outreach of our banks becomes evident when one looks at statistics that show that with a mere 19% rural penetration, only 30% of the deposit accounts are in rural areas. What is worse is, where these services are accessible, the poverty penalty is as high as 10%. 

While we acknowledge that there are a number of grassroot changes, such as microfinance, taking place in the countryside, the fundamental question that needs answer is are the rural poor indeed unbankable? To put it the right way, as Nobel Laurette Muhummad Yunus says - "It is not people who are not credit-worthy. It's banks that aren't people worthy". Are the grassroot revolutions, microfinance in particular, a viable solution to poverty - a problem which humiliates and denigrates everything that a human being stands for?

(More on rural banking, agriculture lending and ebanking in the coming posts)

~ Santosh


The first ever major controversy surrounding Microfinance seems to have gained steam with Muhamma Yunus, the Nobel laureate, openly challenging Carols of Compartamos bank. The debate is over whether the capitalist or the socialist approach is the right model in the step to alleviate poverty.

Compartamos (which means "Let's share" in Spanish) a prominent Mexican MFI is charged with exploiting the poor with their loans that carry an exorbitant annual interest rate of 100%. While the founders of the MFI claim that such lending rates are necessary in the wake of high cost of capital, and needed to cover the high operational costs of lending and maintaining lower denomination loans, one wonders how this lending rate is almost thrice that of other MFIs.

The Nobel laureate who pioneered the Microcredit movement three decades back challenges this model and dismisses this as a model that would eventually be a thing of past just as money-lenders have faded away. But then I wonder why the borrower still flocks to Compartamos if he/she thought he/she was being exploited. Is it lack of other cheaper borrowing options? If so then why don't we see likes of Grameen bank, who consider microcredit as a philosophy and not look at it with just the financial bottom-line, lending at lower interest rates in Mexico?

At the risk of sounding a socialist, I second the Grameen school of thought. I see MFIs as social enterprises and not just a traditional for-profit firm going by willingness-to-pay. In my opinion, this defeats the very purpose of microcredit. On one hand while I believe in market forces and existence of invisible hands, I fail to see how this is the right approach to lift oneself out of poverty.

Catch a glimpse of this debate on PBS Video. You may also want to peruse on the two distinct school of thoughts here.

~ Santosh


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